Pointers when drafting contracts on what is normally considered a boilerplate clause but with important ramifications.

1. What makes a good dispute
resolution clause?

2. The importance of dispute resolution clauses
❖Provide for a way to resolve disputes BEFORE any dispute arises, when
relationships are still good
❖Encourage early and effective settlement, and lower the costs of managing
disputes
❖A pro-active (as opposed to a reactive) approach towards managing disputes

3. Important considerations in drafting a dispute clause
❖Forum- litigation or arbitration?
❖Jurisdiction
➢ and whether the jurisdiction is exclusive or non-exclusive?
❖Conditions precedent to a dispute resolution
➢ options include good-faith negotiations, mediations, or even an early neutral evaluation
❖Choice of law
➢ governing the contract and
➢ governing the dispute resolution process

4. Litigation or Arbitration?
❖Each mode has its own advantages and disadvantages and must be
considered carefully at the point of drafting
➢ the choice cannot be changed later except with the consent of all parties
❖It is NOT by default that arbitration is to be preferred, even when the contract
is “international” by nature
❖It is NOT a given that arbitration would be faster or more cost-effective
❖It all depends on the circumstances of the case and what best suits the
purposes of parties

5. Choice of jurisdiction
❖Choice of jurisdiction can affect the enforceability of judgements and awards
❖If a jurisdiction is not exclusive, then choice of jurisdiction may not preclude
parties from pursuing the case in other jurisdictions
❖Where a jurisdiction is not decided beforehand, then principles of private
international law will apply (to determine the most convenient forum)

6. Conditions precedent to a dispute resolution process
❖Conditions precedent may delay a dispute, or provide for cheaper alternatives
to resolve the dispute at an earlier level before it escalates
❖However, it can also be used as a tool to delay the dispute resolution
process, therefore must be thought through carefully
❖Usually, a formal condition precedent (eg mediation) would be easier to
enforce as opposed to informal conditions precedent (eg obligation to conduct
good-faith negotiations- how to determine good faith?)

7. Choice of law
❖There are two choices of law to be considered, i.e. choice of law governing
the underlying contract, and choice of law governing the dispute resolution
process
❖The choice of law for the underlying contract may depend on:
➢ which legal system has the most logical connection to the dispute
➢ whether parties require a neutral system of law
❖On the other hand, the dispute resolution process itself may be subject to a
different choice of law
➢ This will govern the procedural process of dispute resolution, which affects matters such as
standard of proof, burden of proof, evidence taking, and appeals

8. Considering multi-tiered processes
❖A multi-tiered dispute process is one which:
➢ specifies how the dispute resolution process is initiated
➢ sets appropriate time limits on each part of the process
➢ determines how the dispute resolution process moves from one part to another
❖Some forms of preliminary processes prior to litigation or arbitration could
include:
➢ good faith negotiation
➢ mediation
➢ early neutral evaluation

9. Summary
❖It is best whilst parties are still on good terms with each other to determine
how any potential disputes would be resolved
❖A strong dispute resolution process can help establish better and longer-
lasting commercial relationships

10. About Kheng Hoe Advocates
❖We are a firm of advocates based in Kuala Lumpur. We handle building
contract and construction contract disputes. For a no-obligation consultation,
e-mail us at khenghoe@khenghoe.com. Regardless whether you engage us
or not, we guarantee that you will walk away with a clear idea as to where
your case stands and how to take your case forward
❖We are also available for seminar enquiries specific to our area of expertise
(in-house and public). Visit us at www.khenghoe.com.